Macro markets

Rates continue to move higher, with the US 10yr almost at the pre-pandemic peak.

Note that 2% reflects the mini-recession of 2019, and as such, we’d view 2.5% as a better indicator of where yields should consolidate.

We recently bought a small amount of AGBs, narrowing our underweight as fixed income sold off, and will continue to narrow the underweight as yields rise, ideally moving back to equal weight at that 2.5% threshold.

The configuration of macro markets remains consistent with the “hawkish Fed” stance that we’ve been emphasising since November (e.g. higher yields, higher real yields, lower break-evens, higher USD, widening credit spreads, pausing commodity prices).

Despite the recent widening, we continue to view credit as unattractive, given negative excess bond premia. It’s not the spread that matters so much as the haircut you should assume underpins it, due to expected defaults. Netting those out leaves you with the EBP, the premia that credit investors are ultimately trying to harness.

It is also interesting that copper does appear to have peaked. We remain underweight metals and mining on the back of slowing Chinese domestic demand (weaker fixed asset investment, a function of the woes across property).

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